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What a Kraft Takeover of Cadbury Would Mean for Advertising

Companies Would Spend Estimated $2.7 Billion Combined

CHICAGO (AdAge.com) -- Should Kraft Foods' takeover play for Cadbury eventually succeed, it would create a $51 billion package-food and confectionary company and a $2.7 billion global advertiser. Advertising Age estimates that the two companies would spend about $1.5 billion in the U.S. alone, including both measured and unmeasured channels.

According to TNS Media Intelligence, Kraft spent $837 million in measured media during 2008 to Cadbury's $138 million. While Cadbury may be best known in the U.S. for its Easter-time cream eggs, in actuality the company spends the majority of its budget on gum brands including Trident, Dentyne and Stride. Rounding out the company's top five U.S. brands by ad spending are Hall's cough drops and Green & Blacks premium chocolate bars.

In the event of a combination, it might initially seem as though WPP could stand to benefit -- the holding company's JWT handles Trident, the heaviest spender on Cadbury's U.S. roster, while its Ogilvy, New York, office works for Kraft on the Crystal Light account. But Ogilvy lost a handful of Kraft accounts recently to Dentsu's McGarrybowen, which handles salad dressings and Oscar Mayer products for the marketer. Interpublic Group of Cos.' DraftFCB, Chicago and New York, runs several of Kraft's top five brands by spending, among them Oreos and DiGiorno.

From a media point of view, print publishers might be happiest to see a marriage take place between Kraft and Cadbury. Nearly half of Cadbury's U.S. measured media spending, or $60 million, goes to network TV and another $37 million goes to cable. Kraft, on the other hand -- which is likely to hold the upper hand in marketing as the acquirer -- spent nearly half of its measured media, or $355 million, in magazines during 2008. Network TV was a distant second, at $157 million, and then cable TV, where it rung up $134 million.

Far from a done deal
Of course, a deal is far from done. Cadbury's statement regarding the unsolicited bid said: "The Board of Cadbury reviewed the proposal with its advisers and rejected it." Cadbury expressed confidence in the company's "standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope and the continued successful delivery of its Vision into Action plan."

Moreover, CEO Todd Stitzer is in the midst of a four-year turnaround plan at Cadbury, which dismissed Kraft's $16.7 billion offer as one that "fundamentally undervalues the group and its prospects." For its part, Kraft has issued a statement saying that it is "committed to working toward a recommended transaction" and "maintaining a constructive dialogue."

Most analysts expect the $17 billion offer will merely be a jumping off point to begin negotiations. Kraft, by some estimates, may have to boost its offer by as much as 40% to seal the deal. And Cadbury is free to solicit other bids, leaving many experts wondering if Hershey may throw its hat into the ring.